Shares of Mack-Cali Realty Corp. (CLI) fell about 4% during the regular trading session on Oct 23, following the third-quarter 2014 results announcement. In particular, the company’s funds from operations (FFO) of 48 cents per share exceeded the Zacks Consensus Estimate by a penny. Also, total revenue of $155.5 million comfortably surpassed the Zacks Consensus Estimate of $153.0 million.
However, on a year-over-year basis, FFO per share were down by 9 cents, while revenues fell 4.3% year over year. Additionally, this real estate investment trust (REIT) narrowed its guidance for 2014 FFO per share.
Quarter in Details
During the quarter, Mack-Cali executed 116 lease deals, spanning 621,077 square feet, at its consolidated in-service portfolio. Of the total leased space, 265,636 square feet were for new lease deals and 355,441 square feet were related to lease renewals and other tenant retention deals.
As of Sep 30, 2014, the consolidated commercial in-service portfolio of the company was 83.7% leased, same as the prior-quarter end.
During the quarter under review, Mack-Cali bought its joint venture partner’s stake in three entities – Overlook Ridge JV 2C/3B, L.L.C, Overlook Ridge JV, L.L.C. and Overlook Ridge, L.L.C. – for $16.6 million. With this transaction, Mack-Cali purchased developable land and increased its stake in two operating multi-family assets owned by these firms.
On the other hand, the company divested seven office assets in Connecticut, northern New Jersey and New York to a joint venture led by Keystone Property Group for about $104 million (read: Mack-Cali, Keystone Closes Tri-State Area Portfolio Deal).
Liquidity
As of Sep 30, 2014, Mack-Cali had cash and cash equivalents of $105.5 million, up from $80.9 million at the end of the prior quarter. Also, the company had total debt of $2.2 billion, same as the earlier quarter.
Moreover, Mack-Cali’s debt-to-undepreciated assets ratio was 39.0% as of Sep 30, 2014, compared with 38.4% at the end of the last quarter. Interest coverage ratio was 2.8 times for the reported quarter, same as the prior quarter.
Guidance Narrowed
For full-year 2014, Mack-Cali revised its FFO per share guidance and now expects it in the range of $1.72 – $1.76 compared to its previous outlook of $1.70 – $1.78. The Zacks Consensus Estimate of $1.74 for the same lies within the new range.
Our Take
Although FFO per share and revenues declined on a year-over-year basis, Mack-Cali has scope for improvement, given its current focus on expanding its holdings in the multi-family residential sector that has traditionally been more of a stable product type. The rise in demand for apartments driven by ‘echo boomers’ – children of the baby boomer generation – promises bright prospects for Mack-Cali in this sector. Notably, amid its sluggish core suburban office markets, the company has been divesting a notable part of its office and office/flex assets and deploying the sale proceeds to fund these multi-family apartment investments. Such efforts are poised to pay off well for this Zacks Rank #2 (Buy) stock in the long run.
We now look forward to the results of other REITs such as DDR Inc. (DDR), Avalonbay Communities Inc. (AVB) and General Growth Properties Inc. (GGP) that are scheduled to report on Oct 27.
Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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